Taxes at a glance
Corporate Income Tax (CIT) Rate (%) 15
Solidarity Surcharge (% of CIT) 5,5 %
Trade Tax (TT) Rate (Average Rate) (%) 14
Capital Gains Tax Rate (%) 15
Branch Tax Rate (%) 15
Withholding Tax (%) :
» Dividends 25 %
» Interest 0 %
» Royalties from Patents, Know-how, etc. 15 %
» Remuneration to Members of a Supervisory Board 30 %
» Branch Remittance Tax 0 %
Net Operating Losses (Years)
» Carryback 1 year
» Carryforward Unlimited
In the wake of the COVID-19 pandemic crisis, the maximum carryback has been increased temporarily from EUR 1 million to EUR 5 million for the 2020 and 2021 taxation years. From 2022 onward, the maximum carryback of EUR 1 million will apply.
In general, there are no restrictions or extra requirements levied on foreign investors planning to establish a business in Germany or investing in German real estate or into German businesses. The same legal conditions apply for foreign and local entrepreneurs.
Despite its clear advantages, Germany presents significant hurdles when setting up a business. Forming and establishing a business in Germany can be quite challenging and surprises some foreign investors. To illustrate this, Germany ranks 125 out of 190 economies for “Starting a Business” by the World Bank Doing Business Report for 2020, largely because of Germany’s complex bureaucratic requirements.
Germany has various registration requirements. A new business may be required to register with the local tax and trade offices, the local chamber of commerce, the commercial register and any relevant professional or industry organizations. Not fulfilling any of these requirements can result in penalties and fines.
In addition, there are (still) only very few official documents available in English or other languages. Further, the fiscal authorities, commercial registry, trade offices and social security providers require all correspondence to be made in German language.
The process of setting up a business in Germany can therefore be quite time consuming and costly. With qualified guidance by our team of experienced experts we will ensure a prompt, efficient and optimized start to our business activities in Germany, be it by direct sales without a physical or legal base in Germany or by means of a local German entity.
Schlecht und Partner has guided foreign investors into Germany, assisting closely in setting up the business type of their choice and purpose, be it a permanent establishment or a corporation. We are happy to guide you through the selection process to find the entity type that best fits your business needs and goals and to assist you with the formal steps and guide you through the process, side-stepping any obstacles.
Doing business in Germany can generally be done without a physical presence in Germany by trading goods or providing services directly to German customers.
Without setting up a separate legal entity, foreign-based entities or investors can establish a permanent establishment in Germany (e.g. setting up a store, office or any physical presence).
In terms of legal entities, Germany generally differentiates between
- partnerships (OHG, KG); and
- corporations (AG, UG, GmbH).
The most relevant entity type for foreign-based investors in Germany typically is the GmbH – a limited liability company.
Schlecht und Partner helps foreign based clients to identify the best type of entity to conduct their business activities in Germany, taking any cross-border flows of profits, dividends or financing into consideration.
Setting up a GmbH is straightforward and can be accomplished in just a few steps. To set up a GmbH the involvement of a German notary is required.
In order to establish a GmbH in Germany, at least one shareholder, which can be a private individual or a legal entity is required. The nationality and residence of the shareholder(s) and the managing director(s) of a GmbH are irrelevant. However, the GmbH must have a German business address and a local representative.
A GmbH is managed and represented by its managing director(s) ("Geschäftsführer"), who are appointed by the shareholders ("Gesellschafter"). A shareholder can also be a managing director. A managing director can be directed by the shareholders' resolution.
Certain documents are required for the incorporation of a GmbH: Typically, the notary will ask for documentation verifying the existence of any parent company or shareholder as well as the power of representation for persons acting on behalf of it. If applicable, an excerpt of the foreign commercial register as well as articles of association of the foreign parent company will be required.
It has to be noted that specific requirements regarding the authentication and translation of documents apply in case of a foreign parent company. This depends on the legal form as well as the origin of the foreign shareholders.
In general, the process of setting up a GmbH in Germany is as follows:
Step 1: Drafting of the Articles of Association
Step 2: Notarization of the Articles of Association
Step 3: Opening of a bank account and deposit the share capital in the bank account
Step 4: Provide a confirmation of the share capital payment to the notary
Step 5: Registration in the Commercial Register
Step 6: Trade Office Registration
Step 7: Tax Registration (Tax Number / VAT ID No.)
Articles of association
A necessary document for setting up a GmbH are the articles of association, which shape the identity and constitution of the company. A GmbH is a very flexible type of corporation, there are only a few mandatory components, which have to be included in the articles of association: The amount of share capital, shareholders and the number of respective shares held, business name, registered office, and business purpose. Once drafted, the articles of association must be notarized.
Share capital of a GmbH
A GmbH requires a minimum share capital of EUR 25,000. At the time of registration, at least half of the minimum capital (i.e. EUR 12,500) must be actually and verifiably deposited in a bank account. The share capital is not a deposit that must continuously be kept, but moreover to certain extent, can be used for the company’s business operations.
In addition to a cash deposit, the share capital can also be contributed in kind (e.g. real estate, patents, machinery). An acceptable contribution in kind must be agreed upon in the articles of association, a qualified valuation report by a German auditor is required, and further the asset(s) must be fully contributed. We highly recommend avoiding a contribution in kind, as it is much more costly and inefficient.
Registration of the new company
After filing the documents with a German notary and the payment of the share capital, the notary will initiate the registration with the German commercial register (“Handelsregister”). Once registered in the commercial register, the GmbH becomes a legal entity, and the limited liability for the shareholder(s) exists.
It is important to note that prior to the finalized registration with the German commercial register, the entity does not enact its limited liability. Therefore, prior to the successful registration, the shareholders are subject to unlimited liability. We therefore strongly recommend avoiding any business activities prior to registration.
In addition, a registration with the German trade chamber (“Gewerbeamt”) and the German fiscal authorities is required.
Schlecht und Partner guides clients through the process of setting up a German GmbH. We work closely with lawyers and notary publics in Germany, offering a network of like minded experts. Our service reduces costs, streamlines the process and helps to avoid costly and time-consuming issues. Let us guide you and your business into Germany.
The UG (Unternehmergesellschaft) is a rather new legal form of a corporation in Germany. It was established as a reaction to the very popular British Ltd. that was widely used.
The UG is a “mini” GmbH as it has de facto the same characteristics as a GmbH. It however requires less share capital. While a GmbH requires a share capital of 25.000 EUR of which 12.500 EUR are to be contributed, the UG requires substantially less share capital (as little as EUR 1.-). However, to set up a UG without facing any issues already at the outset, a share capital of at least EUR 1,000 is highly recommended.
The shareholder of a UG face certain limitations and restrictions in accessing its profits generated, as the UG in its concept will grow into a GmbH with its steadily increasing non-distributed profits.
While a UG has become quite popular in recent years, it is rather utilized for startups and does not have the same credibility with banks and business partners compared to a GmbH.
We generally advise choosing a GmbH as a legal form instead of a UG.
Schlecht und Partner has helped to successfully set up numerous entities in Germany. We help to identify the best approach to your entry into the German market. Get in touch with us. We are here to help.
While Germany does not restrict foreign shareholders or investors to engage in business activities or setting up an entity in Germany, formal hurdles however can pose obstacles that need to be considered carefully and may impact the timeline or cause additional expenses.
While foreign shareholders can be a shareholder of a German company, the German law requires the shareholders to be physically present in Germany for the notarization. If a foreign entity is to be the shareholder of a German GmbH, a notary in the foreign jurisdiction needs to confirm in detail that the company exists and is properly represented. This confirmation needs to be apostilled by the relevant state authority. This generally applies to all foreign companies, including EU countries.
While it is possible to have a foreign managing director of the German entity, this could also pose significant issues and should be addressed with the notary and the respective tax advisor in both jurisdictions.
Further, opening of a bank account can be problematic for entities with foreign shareholders – German banks often decline bank account applications for these entities.
Schlecht und Partner has guided foreign investors into Germany, assisting closely in setting up the business type of their choice and purpose, be it a permanent establishment or a corporation. We are happy to guide you through the selection process to find the entity type that best fits your business needs and goals.
When setting up a GmbH the shareholders must decide on the company name as well as the purpose of the entity.
Before the company name is entered in the company register, it must first be checked and approved by the respective local court. For the desired name to be registered, formal requirements must be met, and the name must be sufficiently different from existing company names. Otherwise, the name and registration filing will be rejected, which will result in additional costs for the founders.
The German Chamber of Commerce and Industry (IHK) will check your company name and company objective for compliance for free. We are happy to assist you in this process to avoid any additional costs or time needed to register the entity.
Schlecht und Partner helps to avoid and anticipate any obstacles that may arise when setting up a business in Germany. Our expert knowledge and vast experience combined with our understanding for the needs and circumstances of our foreign clients helps to make the process efficient.
You can use https://notar.de to find a notary that speaks your language.
In addition, we have an extensive network of notaries that we work with closely. Feel free to get in touch with us. We are happy to help.
Schlecht und Partner has a network of outstanding and multilingual lawyers and notary publics in the whole of Germany. Get in touch with us. We are here to help.
A business bank account (“Geschäftskonto”) is a dedicated bank account for a business or an entity, in which the company’s transactions take place. Depending on the form of business, a bank account may be required to contribute the share capital into a business account (e.g. for a GmbH). A business account at a bank can be opened with a branch network (branch bank) or at a direct bank (a purely digital bank).
It is recommended to schedule an appointment with a bank right after the appointment with the notary.
Opening a bank account in Germany is rather formal and generally only available with forms in German language. We highly advise not to underestimate the obstacles that arise from setting up a bank account in Germany. Therefore, we advise to start talking to banks as soon as possible (even before an appointment with a notary is scheduled; however, make sure to not open a bank account prior to notarization). It is advisable, to check with the bank upfront, which documents you need to provide and in what format. Some banks might accept digital documents while others require the original hard copies of the documents.
As a general rule, banks in Germany typically require the following documents and information:
- List of Shareholders (“Gesellschafterliste”)
- Articles of Association (“Gesellschaftervertrag”)
- Certificates of Incorporation (“Gründungsurkunden”)
- Excerpt from the commercial register (Handelsregisterauszug)
- Trade License, if necessary (“Gewerbeschein”)
- Identification of the Managing Director
The required documents may vary from bank to bank.
Schlecht und Partner has helped foreign based clients setting up their German bank accounts. We are happy to assist you in this rather formal process.
After registering your business with the German trade office (“Gewerbeamt”) or the German commercial registry (“Handelsregister”), you will receive communication from your local tax office, requesting you to file the Tax Questionnaire (“Fragenbogen zur steuerlichen Erfassung”). Completing this document is necessary in order to receive a tax number (and VAT ID No.). Without having a valid tax number, the business activities cannot be conducted in an orderly manner. To speed up the process, we highly recommend filing the questionnaire as early as possible.
The following details need to be provided in this Tax Questionnaire:
- Description of the business activity
- Details of the German bank account(s)
- Details of all shareholders
- Details of all managing director(s)
- Estimated profit and expenses for the year the business is set up as well as the following year
- Estimated revenue for the year the business is set up as well as the following year
- VAT treatment
Once this form is filed, you will receive your tax number (a unique identifier for your business, different from your personal Tax ID) and your VAT number. It is important to note both of these numbers are required before invoices can be issued and VAT can be charged.
Please note that the processing time from filing the Tax Questionnaire until receiving the tax number can take several (!) weeks.
We are happy to assist you with filling the Tax Questionnaire and guiding you through this process.
Schlecht und Partner has helped foreign investors with their registration and subsequent compliance needs in Germany. In addition to registering the entity with the German tax authorities we provide payroll, accounting and consulting services as well as audit services.
When establishing and registering a business in Germany it is crucial to ensure to have access to a mailbox. Despite Germany increasing its digital footprint in the public administration, there is still a lot of physical mail being sent out. Therefore, it is important to ensure having access to a mailbox in your company or business name. If you are unable to receive physical mail, significant problems may arise.
Most major cities in Germany have active business center service providers that offer access to a mailbox or even office space, fit to meet your needs. Feel free to contact us if you need assistance in this regard. We have contact to various service providers in all major German cities.
Starting a business in Germany results in various compliance obligations, which vary based on the nature and underlying structure of the business activity and company form.
The administrative, accounting and other compliance requirements and obligations on businesses are intense and the consequences of any failure to adhere to all the detailed rules and regulations, including matters, which might appear to be mere formalities, are often severe.
This specifically applies for VAT: In Germany VAT is not, by its nature, a direct cost for businesses; however it is tightly controlled and strictly supervised.
Business activities that are subject to VAT commonly result in a mandatory monthly or quarterly VAT filing. Respective bookkeeping must be established. The VAT filings are due on the 10th day after the end of the filing period (e.g. for a monthly VAT filing the VAT filing for September is due on 10th October; this also applies for the resulting payments).
If staff is employed in Germany, a monthly payroll must be filed with the German fiscal authorities as well as social insurance providers.
On an annual basis, financial statements and tax returns are to be filed.
We are happy to provide more detailed information and assist you in all your compliance needs.
Schlecht und Partner provides an extensive range of services. Our compliance services include payroll, accounting and consulting services as well as audit services. Our expertise is in the field of international taxation. We are happy to help.
Germany has a federal tax system, with minor differences in the trade tax rates between the municipalities. The federal corporate tax rate (“Körperschaftssteuer) for Germany is 15%. In addition, there is a solidarity surcharge (“Solidaritätszuschlag”) of 5.5% levied on the corporate income tax and a municipal surcharge (=trade tax, “Gewerbesteuer”) of between 14% and 17%, depending on the municipality. The combined rate of corporate tax, solidary surcharge and trade tax is approximately between 29% - 32%.
Schlecht und Partner helps client set up and tax optimize their business activities in Germany. This including domestic tax as well as cross-border tax issues that arise. Our international tax team is here to help you meet the challenge of your cross-border activities
In Germany, tax losses may be carried forward indefinitely for trade tax on income and personal or CIT purposes.
The use of tax loss carry forwards is restricted by a minimum taxation scheme. Only EUR 1 million plus 60 percent of the taxpayer’s current year income in excess of EUR 1 million can be offset against tax loss carry forwards. The restriction applies to both CIT and trade tax.
CIT losses may also be carried back to the previous fiscal year, up to a maximum of EUR 1 million. There is no carry-back rule of losses for trade tax.
Net Operating Losses (Years / Amount)
- Carryback: 1 (only CIT) / EUR 1 million
- Carryforward: Unlimited / EUR 1 million plus 60 %
- Minimum taxation scheme
In the wake of the COVID-19 pandemic crisis, the maximum carryback has been increased temporarily from EUR 1 million to EUR 5 million for the 2020 and 2021 taxation years.
From 2022 onward, the maximum carryback of EUR 1 million will apply.
Schlecht und Partner provides tax and business consulting services. We help our clients to avoid or mitigate any losses that may arise from an inefficient set up process in Germany. If losses cannot be avoided our compliance service team will ensure that the losses are put to use in your tax filing reducing your future or past tax liability.
Setting up a business in Germany often goes hand-in-hand with employing staff. German employment law is rather complex and thus requires detailed due diligence in setting up employment contracts, payroll services and successfully navigating through social security audits.
Employing staff in Germany should always be based on an employment contract.
Employers will usually disperse salary on a monthly basis, typically at the end of the month. However, a different set-up can be specified in the employment contract. The items which need to be covered in an employment contract are:
- Role, responsibility and title of the employee
- Salary: The federal minimum salary is currently set at EUR 12,00/hour (as of October 1, 2022)
- Start date of employment
- Weekly working time. The maximum regular working time is 40 hours per week. Maximum regular working time per day is 8 hours, and the maximum working time in exceptional cases is 10 hours. Overtime must be paid extra or “refunded” as additional time off.
- Place of work
- Paid vacation days: The minimum paid vacation days are 20 days per year for a five days’ working week
- Probation period. Maximum is 6 months
When hiring employees in Germany, the German employment law stipulates that participation in social security contributions is mandatory. The employer is liable for the total payment and is responsible for withholding the contributions from the employee’s salary. Contributions must be made on a monthly basis within the monthly payroll.
Employers need a tax number and a business number (“Betriebsnummer”).
In addition, employers are required to have working accident insurance. For most businesses, the VBG is in charge (“Verwaltungs-Berufsgenossenschaft”, Administrative Profession Cooperative).
Schlecht und Partner provides an extensive range of services. Our compliance services include payroll services. We are happy to take care of your staff and ensure that all necessary filings are made and the payments are made in time. In addition we help to optimize the wage payroll, thereby reducing the tax and social security burden and increasing the net income of the employees. We provide our service in a digitalized manner. If any labour law issues arise, we work closely with expert labour lawyers, that can help you avoid resolve any potential issues.