Guide – How to start business in Germany
Starting an overseas business nowadays is so much easier and profitable than it was two, or three decades ago. There are mostly fewer papers to fill, more friendly tax systems and the rules of starting a company are more favorable to newcomers. Because of that more people decide to start new or extend existing business to another country. One of the more popular directions chosen by people of business is Germany – the powerhouse of central Europe. In this article, we will talk about why Germany is a great country to open a business and share the basics about it.
Why Germany is a good choice?
Why starting a business in Germany is a good idea? There are a lot of factors that have an influence into it. Let’s start with essentials. The first and most influential factor is the economic situation of Germany. In terms of GDP, Germany is now in 5th place in the world, behind only the EU, China, USA, India, and Japan. This makes it No. 1 country in Europe in terms of GDP. For a businessman who wants to start a business in Germany, this is both good and bad news. Good, because it means that the market in Germany is giant and stable – which is good for any business. The bad news is it also means that the competition between companies, and on the actual market is very high. Because of that, even if it is easy to start a company in Germany it is really hard to stay afloat the market if you don’t bring something really fresh, new or innovative to it.
The second thing is the overall diversity of the market in Germany. Because of that, the German market is rich in niches. This creates a lot of opportunities for foreigners to come up with something new. Also, it is easier to present a new product and launch it on the market because of its openness and mentality of German citizens.
The third and last point is the location. It is much easier to manage your company, to organize shipments, etc. in the country located in the heart of the continent. A lot of the biggest logistic centers for Europe are located in Germany, which will be useful if you want to expand to other European countries.
Types of Companies in Germany
Now, as we know why starting a business in Germany is a good idea, we need to get some knowledge about the entire process. The bureaucratic side of launching a business in Germany is unavoidable. And this knowledge is key to get through it faster and easier.
There are 4 essential types of business models in Germany. From one man company to huge corporation. We are describing them below:
– Limited liability company (GmbH) is one of the most popular business models. This limited liability means that the liabilities, such as taxes, etc. of the business are separated from the founder’s personal affairs. It is also a separate entity to the creators of the business.
– Partnership Business is more complicated than the GmbH business model, but also a good point to start your company in Germany. This model of the company can be a general partnership where both partners are responsible for all the liabilities of the company or a limited liability model. You can also make a partnership where one of the partners is a general partner and another one has limited liabilities to i.e. initial investment into the company.
What is important is that you can make a partnership with individuals or companies already established on their own.
– Sole Trader – this business model was intended mainly for alone-working individuals, one-man companies. If you have a plan to employ workers you should consider another business model. As a sole trader only you are responsible for your business, and also for all the formalities. This means that you pay all your taxes together as a single entity.
– Corporation (AG) – last and the biggest and most complicated business model on our list. The set of rules you have to obey if you want to run your company with this model is also longer and more demanding. To start a corporation you will need at least five people together to form it and you have to prepare for a higher initial investment amount.
Now, as we know more about business models in Germany we can move on to the next point.
Payments, investments, and money
As you saw earlier, some business models need an initial investment. In short – this is a particular amount of money you need to start the company off. Some business models require less and some of them require more. A Corporation model company need €50000 and at least five people already on the deck. A GmbH model business needs half of this amount (€25000) and can be started with only one person.
Starting a new business always come with taxes. As a foreigner, you need to know that amounts of taxes can be different depending on the region. To avoid any problems and misinterpretations you should contact local offices and ask them for all the fees and taxes.
Regulations of companies names
German company names are under strict regulations. And this applies to foreigner companies too. Before you start thinking about the name of your business and get too attached to it you should check out the regulations about it. If you have a Partnership (GmbH or a corporation (AG) business model, the name of your company must be connected with the job or the product you offer. It is also allowed to name your company with the names of the founders.
The company registration process in Germany
The process of company registration in Germany is expanded and differ between regions. You need to remember that there are several offices, agencies, and places which you must register your business if you want it to work. You can find all the information where you should register your company on the websites of the particular region, that you want to open your business in. It will also give your information about your registration and on what stage it actually is.
As a sole trader, to start a business you need to apply for the register in the trade office in the municipality in which you want to run your company. You can find a special guide about formalities at the Ministry of Economic Affairs website.
You have to prepare the following documents to begin the registration process:
– Valid ID or passport with an actual photo
– Proof of residence
– Any relevant permits and approvals
Sometimes you will also need to pay a registration fee. Data processing of your application will take a few days but at this time, the trade office will contact the other associations and authorities on your behalf.
If you want to start a bigger business you need to be registered into Bundesanzeiger’s Company Register. And it will cost you depending on the size and type of business approx. 250-500 EUR minimal. There are also legal fees that you might have to pay, i.e. if you have notary certified documents. All fees depend on the:
– the region you want to start your company in,
– the type of business,
– size of the business.
If you want to start a smaller company or work as a sole trader you don’t need to apply for the register in Bundesanzeiger’s.
In this text, you will find very basic information about starting a company in Germany. You can read about the pros and cons of that operation, payments, registers and more. If you want more detailed information you should visit the website of the trade offices of the regions that you want to start your business in.
As we can see, starting a business in Germany isn’t the easiest process but it is definitely worth it because of German economics and the size of the market.
We hope that you enjoyed the lecture. Thank you for your time and attention.
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