How to establish your company in Germany
Germany is the heart and soul of the European economy, its very core. Here businesses of any kind, any size, are able to quickly flourish and establish themselves in the European market, thanks not only to a great geographical location (Germany sits right in the middle of continental Europe), but thanks in most part to the law system in place, which allows companies to grow strong and steady, and allowing for a long lasting life cycle.
So how can Germany be the best choice when it comes to choosing the business headquarters of Your new company? Here are the main steps to consider.
For more information about what is about to come in this article, NZP NAGY LEGAL will be happy to assist You with tips on how to quickly and swiftly set up Your company and answers for Your doubts.
Mittelstand: how big is your company?
No matter how big or small Your business idea might be, at first, everyone starts small. Germany separates itself from the rest of the world already because of the composition and impact of its internal business landscape: the outstanding number is not the comparison between number of small/medium companies – number of big companies, but rather its gross value added figures (47,1% nationwide – 2013 data; 18% rise in gross value added produced in 2010-15 period) produced by the so-called SME’s, the Small-Medium Enterprises, defined by Germany itself as those companies with up to 500 employees and up to €50mil of annual turnover. This shows just part of the success that these companies have in Germany, and this might be just what applies to Your business plan. As a Mittelständer, the German government supports You in every step of the way: reduction of the burdens coming from the bureaucracy, great disposal and range of raw materials, eased financing from the public sector, coordination of skilled labour, heavy start-up support programmes, and so on. The greatest advantage of an SME company is surely the versatility in the choice of object You might set for it: whether it is large or small scale production of goods, or providing services of any kind, Your company is sure to be protected by a business environment that has shown to be fertile ever since the Middle Ages.
The best shoe must be of the right size
So What is in fact the right size of company for You? The truth is, there is a wide range of options for You, but never underestimate the importance of choosing the correct company setup, as it will have lasting consequences on if and how rapidly Your business will grow. It is highly recommended for this step to take only especially informed decisions: NZP NAGY LEGAL has a well-established consulting department, ready to guide Your way towards the very top.
Germany presents many varieties when it comes to company founding, size and capital. The first question You must answer Yourself is: should I open a commercial company? These companies are surely the most widely-used for when it comes to setting up a business. The best success story is the Gesellschaft mit beschränkter Haftung (GmbH), the equivalent of a Limited Liability Company. All the requirements are: 1 person to set it up; €25.000 of initial capital (although only €12.500 are to be transferred immediately to the company, the rest is the amount for which the founder is liable); registration in the Commercial Register, the Handelsregister, after which the company will be legally in existence; appointment of at least 1 managing director, Geschäftsführer. Extremely flexible, versatile company, it is adaptable to every need or business plan. It is the most used company type in Germany.
An extremely attractive way of setting up a company in Germany has been found ever since Nov. 1st of 2008. The Unternehmergesellschaft (UG) was created as a commercial company type with the words “START UP” in mind. The requirements are the same as for the GmbH, with one major exception: only €1 is required as initial capital. Of course there is method to this: every financial year 25% of the annual surplus is required to be stored in a reserve, with the purpose of one day converting the company to a Limited Liability Company.
Another widely used commercial company type is the Aktiengesellschaft (AG), the Joint Stock Company. As it might be expected, here the requirements are more stringent: at least 5 founding members, and during any life period of the company the number of shareholders cannot go below 5; minimum €50.000 of initial capital; publicity of every official act the company endures; legal existence starting only from the moment the company is admitted in the Commercial Registry; a managing board, kept in check in its every aspect by a supervisory board, a model of enterprise that was first introduced by German law, and now is becoming more and more popular throughout the European landscape and beyond, thanks to increasingly demanding regulations about transparent management.
The other company types available in Germany are (in parenthesis is listed also the English correspondent):
- KgaA – Kommanditgesellschaft auf Aktien (limited partnership based on shares), a commercial company
The following are all examples of non-commercial companies:
- OHG – Offene Handelsgesellschaft (general partnership), the most basic form of a business set up through personal liability. Because of its nature, the company needs as grounds of basis at least 2 founders
- KG – Kommanditgesellschaft (limited partnership), the most basic form for a partnership to limit the liability of partners (Kommanditist). At least one partner will have to remain personally liable (Komplementär): this partner will also be the only one allowed by law to represent the company
- GmbH & Co. KG or OHG (Limited partnership with a limited liability company as general partner, or with all partner companies equally unlimitedly liable), a particular partnership between companies, or legal entities, set up as a limited/unlimited partnership with the same setup, and same laws applied to the KG/OHG
As the web grows…
As Your company in Germany will grow eventually, You will feel the need to branch out. Again, there are different ways to do this, with different degrees of independence.
A subsidiary, or Tochtergesellschaft, is literally the “daughter” of a company. Although it has its own assets, management system, accounting and balance system and procedures, it is not entirely independent in terms of strategy of the company. The legal existence of these subsidiaries is subject to prior registration in the Commercial Registry.
A normal branch, or Zweigniederlassung, is at the very least almost completely dependent on its central office. Often used as a means to increase the presence in one area market, it does not require registration in the Commercial Registry.
What it all means in front of the tax man
One of the biggest concerns of entrepreneurs and managers alike is naturally the amount of taxes that have to be paid and, most of all, how can this amount be reduced. Here is a quick introduction of which are the main impositions to look for.
There will be taxes being imposed from federal, state and local authorities, but do not be fooled into thinking it as a heavy burden, as the German tax system is one of the most efficient and rewarding.
The type of company, along with its arrangement, all have great effects when it comes to tax. An AG, a UG or a GmbH, in fact, will be subjected to a corporate tax (Körperschaftsteuer) of 15%, for all distributed and undistributed profits.
The VAT, in German, the Mehrwertsteuer, will be either 19% or 7% to be added on the pricing of whatever product or service You provide for each sale: it depends on the nature of the object You will provide with Your business, although the 7% tax is reserved for a very restricted variety of those. This tax is applied also on imported goods from countries outside of the European Union; opposite to this is the policy on exported goods to the same countries, as this tax will be reimbursed for those operations.
The “solidarity” taxes are still imposed ever since 1995, but since dropped to 5,5% on income, as a means to balance the difference of economical power between former West and East Germany.
The Trade tax, or Gewerbesteuer, is a local tax, and its percentage figure depends on which city You would like to settle Your business into. It is calculated based on the business earnings of a company, and it is usually the heaviest tax of them all.
Other important forms of taxes include the ones over real estate and real estate transfers, Grundsteuer and Grunderwerbsteuer. While the first is a local tax and depending on the type of real estate, it hovers around 3,5%, the second is a state tax.
This all seems very harsh, especially on new businesses and startups. Again, though, don’t be fooled. There are many ways developed by German tax law of easing the burden. One example is that the Trade tax is always deductible from the Corporate tax, because it is considered as a business expense. Also deductible to the same are the Flat Rate taxes on dividends and interests (which amount at 25%).
Your headquarters locations are ‘wichtig’
What You have read above is just a short introduction to what one could expect when setting up a business in Germany. Surely, it is strongly advised to hire the services of business and tax consultants in the location, to shore up any unwanted surprises, and find out the best structure for making Your business idea come alive.
Location though, as visible from this page’s section on tax, is also extremely important, or wichtig as it is said in German. Finding the balance between the best “hub” for Your business and a good taxation policy of the city are crucial for not only a steady growth, but also for rising above the rest.
Enter the Nurnberg-Fürth metropolitan area.
Located in the heart of northern Bavaria, precisely in Mittelfranken, the Nuremberg-Fürth area is one of the most advanced business areas of all of Europe, and it’s here where our headquarters at NZP Nagy are located. Bavaria is already recognized on its own as a very rich land when it comes to capital, but here, everything really seems to come together, as the market around us has shown time and time again. A €27bil generating business hub composed of more than 14,000 businesses, with the most important and vivid sectors being in energy, innovation, and medical. The staggering number of universities in the area make up a great R&D “incubation” area, where innovation, and Your business idea, can flourish with great success, and hit the market immediately. The Nurnberg Messe, the Fair of Nuremberg, has already seen its great share of extremely important corporate and business deals throughout its history, and will only keep doing so at a higher rate as the importance of the Nurnberg-Fürth area grows. NZP NAGY LEGAL has taken a central role in one of the latest of these deals: more specifically, with leading Indian companies in the automotive and innovation sector.
The tax rates in this metropolitan area are statistically and numerically better than most German big cities. The Trade tax is lower, and the expenses in R&D can be reintegrated thanks to great tax concession policies from state, federation and even great innovation investment programmes courtesy of the German Federation and the European Union.
Without mentioning how beautiful of a city is the historical medieval Nuremberg, one of the most important cities of the region and Europe for the last 1000 years, while exploring the walls around the Altstadt and the river Pegnitz going right through the city, what’s not to love about setting up Your new business venture here, in the heart of Germany? Our headquarters are located right in the center of the city. We will be happy to receive You and assist You with the setup of Your new great business!