Checklist: Formation of a German Company. And then what?

Setting up a German Limited Liability Company and everything that comes with it

The most popular company form in Germany is the “Gesellschaft mit beschränkter Haftung” which translates “company with limited liability”. We explain the formation process here (see PDF guideline) and provide a sample set of documents (articles of association, statutes etc.) here.

If you have decided to set up a German subsidiary or register a branch office of your existing company in Germany, the list of FAQs and the formation checklist in this article will guide you through the procedure.

However, before you can fully concentrate on your business there are still some more issues to be taken care of. In addition to the basic registration duties, which are explained on the website of the Central Tax Office, here is a short checklist of what you should not forget when starting a company in Germany:

Employment Contracts in Germany

Most probably, the director of your company will want an employment agreement. Even if you yourself are the sole shareholder and the sole managing director (which is possible and actually quite common in Germany) then you should still set up a written management contract to be able to show the tax authorities a document.

If you hire further employees then you need labor agreements. In this article here we have posted a few contract templates (based on German law but in English language).

Taxation Issues (fiscal registration and declaration obligations):

Shortly after your company has been entered in the  commercial register you will receive a letter by the tax authorities (Finanzamt, Steuerbehörden) assigning you / your business an official tax number and asking you to fill out questionnaires to provide the authorities with information regarding your fiscal situation as well as your turnover and profit estimation. If you do cross border business you should also apply for an international VAT identification number right away, which can be done online here.

A very helpful source of information is the German Central Tax Office (Bundeszentralamt für Steuern) website which is also available in English. The left column provides the sections:

• “Companies based in Germany”
• “Companies not based in Germany”

This official government website explains the implications of the relevant German taxes like corporate tax, trade tax, German VAT and income tax. To give you an impression of what information you will need to provide the tax authorities with, here is the questionnaire of the German tax office for initial registration of a corporation (limited liability company, stock corporation etc): Tax Form to Register Company in Germany Questionnaire 2014

Entrepreneurs that already have a UK limited company and are thinking about opening a branch office or subsidiary in Germany will find these charts helpful which show the total tax burden for corporations in Germany:

Please note that this only refers to the taxation of a company in Germany (be it a GmbH or a Limited Company). Apart from this there is of course the issue of personal income tax. Whether you have to pay that in Germany or UK depends on the question of “persönliche Steuerpflicht” which again basically depends on the criterion residency. More information on the personal income tax in Germany here.

Because of the numerous registration and declaration requirements it may be a good idea to hire a tax counsellor. Even if your business is quite small you might want a German professional to take care of the initial set up of all tax issues. This is especially true if the company hires employees. Later on you may be able to do some or most of it yourself. However, in the areas VAT and wages tax (Lohnsteuer) you should not take any risks because German authorities tend to be quite humourless in that regard. If you are a small business (up to three employees) it should be possible to hire a qualified chartered accountant for the basic bookkeeping and tax declaration tasks at a monthly fee of about 200 Euros.

Further information on business and private taxes in Germany including an overview “German Taxes at a Glance” see here.

IHK-Membership

For each company in Germany there is compulsory membership in the local IHK, the “Industrie- und Handelskammer” (i.e. Chamber of Industry and Commerce). Each region in Germany has its own IHK, in larger cities the IHK’s also provide an English version of their website, for example Munich, Frankfurt or Hamburg. Since you pay mandatory membership fees (for start ups usually just a basic annual fee of 50 to 200 Euros) you may as well make use of this membership by participating in their seminars and networking events. IHK Hamburg for instance offers services for start-ups and businesses from abroad on their website.

Employee registration, statutory accident insurance, statistical reports, Rundfunkbeitrag etc.

As your business grows you will face many more bureaucratic challenges. Some familiar, some typically German as the infamous “Rundfunkbeitrag” for radios and TV sets in your office and car. Helpful information is provided in the Information Sheets of the Federal Central Tax Office.

Company Website and Online Shop

Germany employs extremely strict consumer protection and data protection laws when it comes to websites and online shops. You should have your German internet presence checked to avoid costly cease and desist letters coming from your German competitors. More here.

The law firms Graf & Partners (Germany) and Lyndales (UK) have many years of experience helping entrepreneurs with their business start up or expansion. Also, we have a network of professionals in the areas tax, IT, marketing and business consulting. So, should you get tangled up in red tape, do not hesitate to contact us by email at: schmeilzl [at] grafpartner.com