If you are an entrepreneurial spirit with promising ideas for a small business, there are few better places to bring your vision to life than in Germany. With a thriving and highly developed economy and a business-friendly environment, you’ll find there is plenty of room for innovative new enterprises in the heart of Europe. Once you have some viable ideas in mind for the small business you want to establish in Germany, all you have to do is knuckle down and get going on the paperwork. While the process might seem intimidating at first, especially if German is not your first language, you shouldn’t let bureaucratic matters stand in the way of becoming an independent business owner.
- Prerequisites for starting a small business in Germany
- How to register a small business in Germany
- Paying taxes
Prerequisites for starting a small business in Germany
There are some basic steps you will have to take to begin the process of founding your small business.
1. Register an address
The first step is to register at an address (Anmeldung), which you probably have already done if you are settled in Germany and plan to start your own business here.
2. Open a bank account
The next step is to open a bank account which you will require to register your business and pay your taxes. If you are a freelancer (Freiberufler/in) or a tradesperson (Gewerbetreibende) you are not obliged to open a business bank account. It is important to check with your bank to find out if they permit the use of a personal bank account for your business transactions. If you wish to form a corporation, you will need to open a separate business account (Geschäftskonto). Even if you don’t require a business account, it is good practice to have separate bank accounts for your business and personal transactions. This will ensure that your bookkeeping is simplified and you avoid making any costly errors.
3. Get professional advice
The next important step is to get professional advice. A good starting point for this is to check out the Single Point of Contact (Einheitliche/r Ansprechpartner/in) in your Federal Land (Bundesland) which you can find here on the Federal Ministry for Economic affairs website. On this webpage you can register your business and apply for a permit to trade.
It is recommended that you approach the German Association of Chambers of Industry and Commerce (DIHK) for free advice. It is also highly advisable to consult a tax advisor (Steuerberater/in) before embarking on your enterprise. Although this will not be cheap, in the long run it may save you a lot of money (and some headaches). A tax adviser will also help you devise a strong business plan which you will need for permission to trade goods and borrow credit from your bank, if necessary. Good taxation advice will make your business accounting far easier and ensure your start-up is based on a secure foundation. You can find a tax consultant in your area on the Federal Chamber of Tax Consultants website.
4. Check your residence status
The final step you must consider is your residence status in Germany. If you are an EU, EEA or Swiss citizen, you are allowed to freely undertake self-employed work in Germany once you complete the steps below. Any citizen of a country outside of this grouping will have to make an application for a residence permit for the purpose of self-employment. To this end, you must demonstrate that your business venture is financially realistic and that it is in the economic interest of Germany.
How to register a small business in Germany
This process will, of course, be much easier if you speak German since the business registration form, as well as most of the other documentation, will have to be completed in German. Your tax adviser will be able to work through this formality with you.
There is an important legal distinction in Germany between a freelancer and a tradesperson. A freelance worker is someone with specific qualifications who sells related services. A list of such professions can be found here. All others working on a self-employed basis are tradespeople. In order to be registered as a tradesperson you will first need to acquire a trade license (Gewerbeschein). If you have any doubt about which category you fall into, you will need to consult your local tax office (Finanzamt) for advice.
You must complete the Questionnaire for Tax Collection (Fragebogen zur steuerlichen Erfassung). This can only be done online as of 2021. The registration process is somewhat more complex if you wish to register as a corporation as you will need to provide your local Trade Supervision Office (Gewerbeamt) with additional documents; a notarial certification and commercial register (Handelsregister) entry. Again all of this bureaucracy will be much easier with the help of a tax adviser. You can also find more information on the Business Start-up Forum of the Federal Ministry for Economic Affairs.
In order to start your business you will need some money, known as equity capital. Your equity should amount to 20% of the total capital needed. It will serve as collateral for the bank and increase your chances of getting loans. So it is important to have this money saved in advance.
When you receive permission to trade you will be recorded in the trade register (Handelsregister) and assigned a tax number (Steuernummer) and VAT number (Umsatzsteuernummer). If you engage employees, you must register them with the Federal Employment Agency.
Naturally when starting your business in Germany you will have to pay taxes on your profits to your local Finanzamt. Which taxes apply to you and how much you need to pay will depend on the size and structure of your business and on your profit margin.
Once again, it would be prudent to seek a consultation with a tax adviser in order to clarify your own particular tax situation and resolve any questions you may have. This will reduce the likelihood of making tax errors or even incurring fines.
Ready to harness your entrepreneurial spirit?
We hope you now have a better idea of the process of starting a business in Germany and fewer concerns about the bureaucracy. Once you have your business concept developed, your documents ready, your business registered and have a firm grasp of the German tax system, the sky’s the limit. Just harness your inner entrepreneur, put in plenty of effort and do the marketing to get your business off the ground! Good luck! Viel Erfolg!
Leona has her roots in the South of Ireland, where she grew up on her family farm. She went on to study World Politics at Leiden University College, The Hague and then completed her MPhil in International History at Trinity College Dublin. Leona has now settled in Berlin, having fallen in love with the city. In her spare time she is working on perfecting her German in anticipation of her doctoral studies, during which she plans to study modern German social history. Her hobbies include bouldering, dancing and reading a healthy mix of history books and corny fantasy fiction. You can find more info about her on LinkedIn.