Germany is one of the largest and most stable trading economies in the world. It offers highly developed and secure economic and political frameworks.
Several contributing factors such as a positive social climate, a skilled workforce, a proven track record of research and development, and a well-developed infrastructure have made Germany an attractive market for investors and new business owners.
However, successfully starting a business in Germany requires full knowledge of the relevant tax structures, German bureaucratic procedures, and legal environment. This article talks about all the requirements to do business in Germany.
Business Opportunities in Germany
Germany has created a friendly business environment for businesses and individuals looking to expand into the country. With the right infrastructure and economic frameworks, Germany provides business opportunities for several industries.
The most common industries to set up a business in Germany are —
- Science and technology or IT support
- Financial services
- Research and development
These industries contribute the most toward the German GDP due to the ease of doing business and skilled employees.
Benefits of Starting a Business in Germany
Germany’s strong legal regulations enable domestic and foreign investors to protect their intellectual and industrial properties while enforcing their rights under the German company laws. Due to this, there are several advantages of doing business in Germany, which include
A constant commitment to innovation
With time, Germany has made its mark by becoming one of the top ten countries in science and technology, emphasizing innovation. German employees are known to efficiently translate research into practical applications, making industries such as automobile, science and technology, and pharmaceuticals the most sought after to expand into.
The German government supports applied research by supporting startups, funding research institutions, and licensing intellectual properties (IPs) to ensure researchers can build stable careers outside academia.
This is one of the most significant advantages of setting up a company in Germany. Germany as an economy offers a variety of public funding instruments and incentive programs for starting a business in Germany. The most popular ones include —
- GRW cash grants
- Grants for hiring
- Research and development grants
The special programs and investment incentive programs help new businesses expand their operations in the German market by offsetting the upfront investments.
Pivotal consumer market
With a population of 84,278,500 (as of May 09, 2022), Germany is one of the largest consumer markets in the European Union (EU). It is the second-largest exporter of consumer-oriented agricultural products, making it an important economy in the European market amongst foreign producers.
Germany also hosts large trade events which makes networking easy. This is one of the major advantages of doing business in Germany.
Strong market for startup culture
Germany is one of the very few economies that rank highly in the startup culture. Germany’s major economic and startup hubs are located in Hamburg, Berlin, and Munich, with Berlin the leading global tech hub.
The tech hub of Germany is known for its cultural attributes such as creativity, open-mindedness, international character, and vibrancy, making it one of the most attractive cities for businesses to expand into.
Requirements for Starting a Business in Germany
- If you are a self-employed person, you must be 18 years of age.
- Your business must have a tax advisor to register your business in Germany. The tax advisor helps pay taxes when you set up a business in Germany. The type of taxes depends on the legal entity your business is.
- If you are a self-employed individual, you require a work permit and a residence permit to run your business. As a foreigner, your current residence permit might not allow you to practice as a self-employed individual in Germany. Applying for a freelance visa in Germany requires you to register your business first.
- Trade licenses for certain industries, such as the banking industry.
- Bank account for business transactions
- Registering your business with ELSTER requires the following details:
- Personal details
- Details of spouse (if applicable)
- Details of your tax advisor
- Authorization of details from your tax advisor
- Information relating to your business
- Name of the business
- Start date of the business
- Business address
- Contact details of the business (email and phone number)
- If you have an online business, provide the business URL/website link
- Businesses having multiple office locations must mention the number of offices in Germany and the business addresses
- Information about your executive board members
- Addresses in Germany (if you have paid taxes in Germany for the past three years)
Types of Business Structures in Germany
There are certain common types of business structures in Germany. The types of business include —
- Sole proprietorship
- General partnership
- Limited partnership
- Private limited liability company
- Stock corporation
- European stock corporation
Company Registration Process
If you are looking to start a business in Germany, it is mandatory to register the business with the Finanzamt. The company registration process begins by you filling out the tax assessment form (Fragebogen zur steuerlichen Erfassung in German). You must fill out the form online through an online portal known as ELSTER. After filling out the form, you get:
- A tax number (Steuernummer)
- Your company registered with the trade registrar
- A VAT number (Umsatzsteuernummer)
However, before you start a business in Germany, there are certain company registration requirements and for German business incorporation.
- You must submit the following documents to the German commercial registrar:
- Notarized articles of association
- An application for registering your business in Germany
- A document that describes your management board structure
- A breakdown of the share capital invested
- The documents submission process is online and on the platform ELSTER.
- For industries that require mandatory trade licenses, you must apply with the local Office of Business and Standards for a trading license
- Registering with the Statistical office, the Chamber of Industry and Commerce, and the Labor office is mandatory for running operations and hiring employees in Germany. You will then receive an eight-digit number that helps you register within the German social security system.
- The next step is to apply with the federal health insurance office.
- Post the application to all the necessary departments; you must notify the tax office. This ensures that you are registered as a new business entity. The German tax authorities do registration for corporate taxes and VAT.
Starting a business in Germany takes approximately 11 days if the documentation is submitted correctly. Having relevant legal aid when incorporating your business in Germany ensures that the process is compliant and smooth.
How Much Does it Cost to Incorporate a Company in Germany?
The cost of incorporating a company in Germany is approximately
- Virtual office costs — 208 Euros per month
- Company formation fees — 1,800 Euros (one-time costs)
- Accounting costs — Accounting fees if you are outsourcing your accounting start from 100 Euros per month
- Minimum share capital if your business is a limited liability company can be 25,000 Euros
- Registration fees can be up to 400 Euros, including notary costs
Are Foreigners in Germany on Certain Passes Allowed to Start a Business?
German laws and government incentives encourage German residents and foreigners to start a business in Germany. The foreign trade laws highlight the main conditions and provisions for foreign enterprises to conduct business and set up a company in Germany.
All foreign investors and entrepreneurs in Germany enjoy the same benefits as a resident entrepreneur, which include —
- Availing government incentives
- Availing licenses, special permits, and building permits
- The company registration process
Incorporating a company in Germany is fairly a straightforward process, although foreign entrepreneurs may find registering a business in Germany complex due to language barriers. This is where partnering with a global PEO and EOR can help. Multiplier compliantly assumes all HR responsibilities while you focus on expanding your operations in Germany and hiring German employees by sidestepping the process of starting a business in Germany.
Government Assistance for Foreign-owned Businesses
The German government provides several loans, direct subsidies, and grants as a part of tax incentives to domestic and foreign entrepreneurs for starting a business in Germany. Initiatives such as special investment programs are also implemented at a regional and federal level.
Foreign entrepreneurs must keep an eye out for suitable solutions that the German government provides concerning tax incentives for the type of business and the industry they operate in.
How Can Multiplier Help?
Partnering with a PEO and an EOR platform such as Multiplier can help you seamlessly expand your business in Germany. Given the complex laws and several requirements to set up a business in Germany, Multiplier can help you compliantly expand your operations. Our team of professionals in Germany assumes functions that include processing payroll, timely payment of taxes, and onboarding your German employees while you focus on expanding your business.
Talk to us to learn more!