Forming a company in Germany is not a complicated process. However, there are some important steps to be taken to establish your business compliantly.
Below is the step-to-step guide on how to set up an entity in Germany.
Company types to incorporate in Germany.
There are quite a few enterprise types in Germany. Each of them having different objectives and legal requirements. Therefore, it is crucial to establish a clear difference between them.
- German GMBH
A GmbH (Gesellschaft mit beschränkter Haftung) is equivalent to a private limited liability company (LTD.). The GmbH is the most popular company model in Germany. It is managed by a director, who is appointed by the board of shareholders. The GMBH’s company shares are not allowed to be listed on the stock markets, and they may not be traded publicly. No restrictions on repatriation of profits apply in this case.
- German UG
An Unternehmergesellschaft (UG) is a special form of a GmbH available for those who wish to establish a firm with limited resources. The number of shareholders for a UG is not restricted. As a rule, the rights and obligations of the UG shareholders are based individually on the participation of the individual shareholders. This type is mostly popular for new small businesses and start-ups.
- German AG
A Joint Stock Company is most suitable for larger businesses and publicly traded companies. The members of the AG are liable for the contribution of capital. A board of directors manages the company while being supervised by a separate board. A registered auditor must audit the company’s accounts.
- German KG – limited partnership
Option for two or more collaborating partners. These can be silent or general partners. General partners are fully liable while silent partners are liable for the contributed capital. Silent partners cannot intervene with daily business decisions and actions.
- Subsidiaries and Branches
The formation of a German branch to an international company is possible, but the branch is not a legal entity. The parent company holds liability and profits.
A subsidiary formed in Germany, however, is a separate legal entity. A foreign company can hold shares.
How much does a company formation in Germany cost?
The set-up cost for a company in Germany, and the capital you have to present depend on the company type. For an UG, the mandatory capital is €1; though, the amount of €1,000 is suggested.
If you have decided to set up a GmbH, the minimum of €12,500 is needed.
For an AG, the minimum required capital is €50,000.
How to incorporate a company in Germany?
Even though setting up an entity in Germany is not complicated, you should follow the right procedures. Which may differ depending on your company type.
- Create your company name and check with the commercial register (Handelsregister) whether the chosen title is available or already taken.
- Define the object of your company (Unternehmensgegenstand).
- Apply for the name of the company with the German Chamber of Commerce and Industry (IHK).
- Draft articles of association and notarise them.
- Open a local business bank account
- Deposit the share capital (Stammkapital) in your account and file the bank statement with your documents
- Apply for a Tax ID and register with the local trade registration (Gewerbeamt)
- Some companies require insurance, depending on the sector.
Legal Requirements & Accounting
For the formation of a company in Germany, the following documents have to be presented at a notary:
- The directors’ and shareholders’ identity information
- A copy of the passport from all directors, shareholders, and ultimate beneficial owners
- A company incorporation form filled in by you
It is obligatory to work with an accountant and tax advisor to make sure your finances are filed correctly.
Taxation of your company in Germany
The company tax rate is 15% but might vary in some cases. A 5.5% solidarity surcharge has to be paid on top of the company tax. The municipalities additionally apply a trade tax and set the rate for it. It is at an average of 13.96 %. The combined rate of company tax, trade tax, and the solidarity surcharge is approximately 30%.
German Tax system is notoriously complex and compliance with it is non-negotiable. That is why we advise to partner with a professional legal and tax advisor to avoid the pitfalls.
How long does the process of a company formation in Germany take?
A company in Germany could be incorporated within 2-5 days if all the documents are submitted accordingly. The timeframe might change depending on the company type and the individual case.
There is a number of ways to legally conduct business in Germany. Company formation and International PEO are two of them.
Are you thinking of expanding into German market? Reach out for the best solution