Opening your own business in Germany as an expat

Bas

Nov 13 • 5 minute read

As Europe’s primary economy, Germany is also the perfect destination for anyone looking to start their own business. I’m not talking about freelancers, but if you’re looking to actually start your own business, this article is for you. We’ll take a look at the requirements for foreigners, the process of opening a business and discuss some of the tax-related choices you need to make.

The right Permit

If you’re a foreigner looking to start your own company in Germany, you need to make sure you’re eligible to do so. As far as permits go, there are 2 routes available for you.

  • a residence permit specifically for foreigners to start a company.
  • a residence permit based on investment in or the acquiring a German business worth well over €250.000, as well as creating at least 5 jobs.

I expect that most of you don’t have that kind of money or business experience lying around, so we’ll focus on starting a small business or being self-employed (but not a freelancer).

To obtain the residence permit intended for freelancers and other entrepreneurs, you need to meet a number of requirements that prove your business venture into Germany is actually viable. The extra requirements are as follows:

  • First of all, your business or company needs to have a place in the German economic landscape your business will be entering. In other words, your service or product needs to have a demonstrably positive impact on the German economy.
  • You need to submit a complete, solid business plan to show that your business is ready to be set up, grow, thrive and survive.
  • You need to prove that you’re able to finance your new business with your own capital, through loans or through investors.
  • If you are 45 or older, you must prove that you have adequate pension provisions in place.
  • If your business involves a protected craft and you’ll also be performing those duties (e.g. working as an electrician while also hiring additional electricians), you will need to be certified for your profession (Erlaubnis).

If you and your fledgeling business meet these requirements, you’ll receive a temporary residence permit that allows you to start your own business and work at and for your company alone. This permit usually lasts around 2-3 years before it needs to be renewed.

Starting your business if you’re already in Germany

Starting your own business in Germany is a big step! For many of you, it could be that you want to be sure that Germany is the right home for your business plans, or you simply really decided to strike out on your own while you’re already working a normal 9-5 job.

If that’s the case, and you’re already in Germany with a work permit, then you’ll have to switch permits. Don’t worry, you can keep working while you’re applying for the new permit. If your request is denied, it should not affect your current work permit. Besides the fact that living and working in Germany before starting a business is a good way to really decide if it’s what you want, it also speeds up the application process, as you’ve already met most of the other basic requirements a residence permit requires.

Process Orientation

Before we dive into the business administration side of things you need to do to get your company running, I have to remind you that I’m providing you with an eagle-eyed overview of the process. Starting a business can be a lot of legwork, so most of the steps are going to require some proper thinking and talking to material experts. Thankfully, Germany has an excellent point of contact just for people with plans of getting down to business in Germany.

So, if you need specific information, help or clarification during any of the parts in the process, you can reach out to the local Einheitlicher Ansprechpartner (EA or ‘Point of Single Contact’). Each German state has its own, you can find the right point of contact here. The local EA allows you to talk to their English speaking staff to help you tackle any of the administrative processes linked to your business venture.

The right German business structure for you

One of the most important decisions you can make for your new company is to determine the right business structure. This is important because it dictates the amount of taxes your company will pay, as well as the way liability works. So, these are the things you need to figure out in order to determine the right structure:

  • How many people are starting the business? One or more owners and their roles in the company each have different business forms that might be more or less favourable, depending on your business.
  • Who will lead the business. Even if you have multiple owners, not everyone might be involved to the same degree. So figure out who’s going to be the big boss.
  • How do you want to set up liability? You could pick a form which has favourable taxes, but also leaves you personally liable for any debts. Or do you want to shield yourself from liability surrounding the business?
  • How much equity is involved? Money makes the world go round, and also starts your business. The amount of money you’re able to use to support your business will also play a role in which type is best for you.

The three main forms are

  • Sole Ownership (Einzelunternehmen): As it says, there’s only one person involved in this. This is the way to go for freelancers and one-person businesses (like if you’re opening a shop) who aren't looking to hire an extensive staff. You’re liable for all debts in this case.

  • Partnerships (Personengesellschaften): As the name suggests, this form is for partnerships of at least 2 legal entities (this can be you and a partner, but also 2 organisations). Both full liability and limited liability are available.

  • Corporations (Kapitalgesellschaften): If you’re going big, you’ll want a corporation. It can be formed with up to 5 entities and requires startup-capital. All of these configurations have limited liability.

Each of the main structures has a handful of variations. Make sure you talk to the people who speak legalese to help you pick the version that matches your situation. Also, your business name legally must contain the type of structure you’ve selected (e.g. New Business Shop GmbH), so looking at a similar business could point you in the right direction.

Registration at the Commercial Register & trade office

Now, if you’re on your own or with 2 people, it’s likely you won’t be swimming in revenue for a while. As such, you are classified as Kleinunternehmen, a small business with a revenue of up to €22.000 in the first year and no more than €50.000 in the early years. This means that you don’t necessarily have to sign up in the handelsregister, as it’s usually not worth the cost.

If you have a bigger company, you need a commercial registration number (Handelsregisternummer). You do this by signing up your company at the German Commercial Register (Handelsregister).

Now that you've got the number that determines your company is real and any licences or permits you might require, you can register at your local trade office (Gewerbeamt) to register your business. You can find these all over the country, so use the government’s website to find the one that’s closest to you using your postal code (select Gewerbeämter and your postal code (Postleitzahl))!

Reach out to them and be sure to inquire about the relevant documentation you will need to complete your registration.

The German Tax office

Shortly after registration at the trade office, you will receive a request from your local tax office to fill in a taxation questionnaire (Fragenbogen zur steuerlichen Erfassung). You don’t want to make any mistakes with this, so make sure you consult a tax advisor. You will need to submit the following information:

  • Your personal tax identification number
  • A description of your business activity
  • All German bank accounts of those involved in founding the business (personal and business).
  • An estimation of your company’s profit and expenses
  • An estimation of your company’s revenue
  • The details of your registration in the Commercial Register (if applicable).

Once you submit this form, you will receive your company’s tax number and a VAT number. You will need both of these numbers before you can start sending invoices and charging VAT.

Boom, now you have everything you need to start getting to work for your brand new business, good luck!

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