How to Start a Business in Germany: Legal Forms, Tax and more

Start a Business in Germany. Germany stands as Europe’s largest economy, a hub of innovation, engineering excellence, and global commerce. Establishing a company in Germany offers entrepreneurs access to a stable legal environment, a well-developed infrastructure, and a sophisticated consumer market of over 80 million people.

This guide explains how to set up a business in Germany, the main legal forms available, the procedural steps, taxation considerations, and key points foreign founders should know.

Why Choose Germany for Your Business?

Before diving into the process, it’s worth understanding why Germany attracts entrepreneurs from around the world:

✅ Strong Economy: Germany is the EU’s economic powerhouse with high purchasing power.
✅ Legal Certainty: A transparent regulatory system protects investors.
✅ Access to the EU Market: Germany offers seamless access to the European single market.
✅ Skilled Workforce: A large pool of highly qualified professionals supports business growth.
✅ Innovation Support: Generous R&D grants and funding programs are available.

Whether you are starting a tech company, a manufacturing operation, or a consulting business, Germany offers a reliable foundation.

The Main Types of Companies in Germany

If you want to start a business in Germany, than you have to choose a legal form. German business law provides a variety of legal forms. The most commonly used structures are:

1️⃣ Sole Proprietorship (Einzelunternehmen)

Who is it for?

• Freelancers
• Small traders
• Self-employed individuals

Features:

• Simple registration process
• No minimum capital requirement
• Unlimited liability (you are personally responsible for debts)

2️⃣ Partnership Structures

Several partnership models exist:

a) GbR – Civil Law Partnership (Gesellschaft bürgerlichen Rechts):

• For small businesses with 2+ partners
• No minimum capital
• Partners are personally liable

b) OHG – General Commercial Partnership (Offene Handelsgesellschaft):

• Suitable for larger commercial operations
• All partners have unlimited liability

c) KG – Limited Partnership (Kommanditgesellschaft):

• At least one general partner with unlimited liability and one limited partner (liability limited to their contribution)

3️⃣ Limited Liability Company (GmbH)

GmbH (Gesellschaft mit beschränkter Haftung) is by far the most popular legal form for SMEs and foreign investors.

Key characteristics:

• Minimum share capital: €25,000
  (At least €12,500 must be paid in upon formation)
• Liability limited to the company’s assets
• Suitable for most commercial activities
• Must be registered in the Commercial Register (Handelsregister)

For small startups, there is also an entrepreneurial company variant called UG (haftungsbeschränkt), sometimes referred to as “Mini-GmbH.”

UG Features:

• Minimum capital: €1
• Profits must be partially retained to build up reserves until €25,000 is reached

4️⃣ Stock Corporation (AG – Aktiengesellschaft)

AG is used for larger businesses and companies planning to raise capital through shares.

Features:

• Minimum share capital: €50,000
• More complex governance (board of directors and supervisory board)
• Suitable for publicly traded companies

Overview of Main Business Types in Germany

How to Establish a GmbH in Germany (Step-by-Step)

Since GmbH is the most common, here’s how to set one up:

1. Choose a Company Name

Your name must be unique and comply with German naming rules:

✅ Cannot be misleading
✅ Must indicate the legal form (“GmbH”)
✅ Must differ sufficiently from existing company names in the register

Tip: The local Chamber of Commerce can pre-approve your proposed name.

2. Draft Articles of Association (Gesellschaftsvertrag)

The articles of association define:

• Purpose of the business
• Shareholder contributions
• Management structure
• Profit distribution

3. Notarize the Articles

In Germany, formation documents must be notarized. All shareholders must appear before a notary in person or via a representative.

4. Open a Business Bank Account

You will need to:

• Deposit the minimum share capital (€12,500 or €25,000 depending on setup)
• Obtain confirmation of payment from the bank

5. Register with the Commercial Register (Handelsregister)

The notary submits your documents to the local court for registration.

Note:

• GmbH only exists legally after this registration.
• Your company will be publicly listed.

6. Obtain a Trade License (Gewerbeanmeldung)

Most businesses require a trade license from the local trade office (Gewerbeamt).

7. Register with Tax Authorities

The tax office (Finanzamt) will issue:

• A tax number
• VAT ID (if applicable)

8. Register with Social Security and Professional Associations

If you hire employees, you must:

✅ Notify social insurance institutions
✅ Register with the statutory accident insurance (Berufsgenossenschaft)

Taxation of German Companies

Corporate Income Tax

GmbHs and AGs are subject to:

• Corporate tax: 15%
• Solidarity surcharge: 5.5% of the corporate tax
• Trade tax: ~7–17% depending on the municipality

Effective tax burden: ~30%

VAT (Mehrwertsteuer)

• Standard VAT rate: 19%
• Reduced rate: 7%

Businesses exceeding €22,000 turnover must register for VAT.

Withholding Taxes

• Dividends: 25% withholding tax (can be reduced under EU directives or treaties)
• Interest and royalties may also be subject to withholding

Tax Filing

• Annual financial statements must be prepared and filed.
• All records must be kept in German and retained for at least 10 years.

Accounting and Reporting

Small companies benefit from simplified rules:

• Balance sheet exemption (up to €600,000 turnover and €60,000 profit)
• Cash-based accounting

Medium and large companies must comply with full commercial accounting standards.

Hiring Employees

Germany has strict labor laws. Key points:

✅ Written employment contracts are required
✅ Social insurance contributions are split between employer and employee (~40% combined)
✅ Minimum paid vacation: 20 working days per year
✅ Notice periods depend on tenure

Bank Accounts and Financing

Opening a business bank account is essential. You will typically need:

• Valid identification
• Articles of association
• Trade registration

Financing options include:

• Traditional bank loans
• Government grants (e.g., KfW development bank)
• EU funding for innovation and research

Can Non-Residents Start a Business in Germany?

Yes. Foreign nationals can own 100% of a German company. However:

• A local representative may be helpful for administrative tasks.
• Bank account opening sometimes requires in-person identification.
• Some industries need special permits.

Advantages and Challenges

Advantages:

✅ Access to the EU’s largest market
✅ Stable economic environment
✅ Strong legal protections
✅ Skilled workforce
✅ Reputation for quality and reliability

Challenges:

❗ Complex bureaucracy
❗ High labor costs compared to Eastern Europe
❗ Tax compliance requirements
❗ Mandatory notarization adds cost and time

Conclusion – Start a Business in Germany

Starting a business in Germany is a structured process that combines opportunity with responsibility. From selecting the right legal form to navigating tax registration and employment regulations, founders must plan carefully.

Despite the procedural complexity, Germany remains an exceptional base for companies seeking a secure and prestigious European presence.

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Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Readers should consult with a licensed professional before making any financial or business decisions.