How to set up a business in Germany
If you are looking to set up a business in Germany, you might have some questions about how the process works.
We have covered the key information on the areas that are most often questioned by foreign businesses looking to relocate: entry and residence requirements, business establishment, corporate taxation and employees and social security.
1. Entry and residence requirements for Germany
Throughout the process of setting up a business in Germany, you will likely want to visit the country in person. Depending on your country of origin and intentions in Germany, you may require a visa or permit for entry. The table below explains what foreign nationals require visas and what these visas entitle you to.
|Residence Title||Entitlement||Foreign nationals who require a residence title|
|Visa (Schengen visa and national visa)||Entry into Germany followed by a short-term stay (up to 90 days in any 180-day period)||Non-EU citizens excluding nationals from Argentina, Australia, Brazil, Canada, Israel, Japan, Mexico, New Zealand, South Korea, UK, the USA, Hong Kong, and some other countries|
|Entry into Germany followed by a long-term stay (for which an additional residence or settlement permit is required)||Non-EU citizens excluding nationals from Australia, Canada, Israel, Japan, New Zealand, South Korea, UK, and the USA|
|Residence permit or settlement permit||Long-term stays and stays with the intention to take up gainful occupation||Non-EU citizens excluding nationals from Iceland, Norway, Liechtenstein, and Switzerland|
2. Business establishment in Germany
There are different ways to enter the German market. Establishing a local subsidiary or registering a local branch office are common options for expanding foreign companies. The procedures for establishing a business are quick and easy, although it is important to note that all commercial operations must be entered into the commercial register (Handelsregister) through incorporation by an appointed Notary.
A subsidiary is a separate firm that has been founded and is mostly owned by another corporation (parent company). For local subsidiary establishment, foreign corporations frequently choose the private limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) option.
A branch office forms part of the foreign head office company’s organisation. There are two kinds of branch establishments: the autonomous and dependent branch office. These differ primarily due to the degree of independence from the head office company. Following Brexit UK corporations with administrative headquarters in Germany are not recognized as having legal capacity unless they are registered in the (German) Commercial Register.
If you are looking to start a new business, there is a thriving start-up scene in the Leipzig region. This rapid development has been fuelled by the creation of incubator and accelerator programmes. These have managed to effectively support founders in their first steps. Numerous start-up initiatives, coworking spaces and event formats offer founders valuable knowledge and exchange, thus Leipzig offers an excellent start-up ecosystem.
3. Corporate taxation in Germany
Germany offers a competitive system of corporate taxation. All corporations – including the limited liability company (GmbH), the stock corporation (AG) and German permanent establishments of foreign corporations – are subject to corporate income taxation. Income tax of businesses in Germany consists of three components:
- Corporate income tax in Germany
Corporate income tax (Körperschaftsteuer) is a flat nationwide tax rate of 15 percent of the taxable corporate income. Under German commercial law, corporate companies’ annual profits are calculated and recorded in the annual financial statement, which forms the basis for determining taxable income.
- Solidarity surcharge
Solidarity charge (Solidaritätszuschlag) is a fixed nationwide company tax. It is added to corporate income tax at a set rate of 5.5% of the income tax rate (not 5.5% of income). When added to corporate income tax, the total taxable rate is 15.83%.
- Trade tax in Germany
Trade tax (Gewerbesteuer) in Germany is regulated by federal law and is a municipal tax. The rules for determining the taxable income (business profits plus certain statutory additions and allowances) are the same across Germany. Moreover, the trade tax rate is the same for all businesses within one municipality. However, the specific tax rate applicable in a municipality is individually determined by each municipality.
The individual trade tax rate of a specific site is therefore the decisive factor for the overall corporate tax burden. As a rule, the trade tax rate tends to be higher in urban than in rural areas. The solidarity surcharge is not levied on trade tax.
The individual trade tax amount depends on two factors: the multiplier (Hebesatz) stipulated individually by every municipality and the tax base rate, currently 3.5 percent (across Germany).
For information and assistance navigating German tax regulation, Invest Region Leipzig can put you in contact with the right accountancy firm for your business.
4. Employees and social security
Germany’s workforce is regarded around the world for being highly qualified, driven, and conscientious. Employers are permitted to customise the recruiting process to meet their specific requirements. There are only a few rules to follow, such as offering work without discrimination (meaning that employers are required to hire on an equal opportunity basis without discrimination in terms of race, ethnicity, gender, religion, conviction, disability, age, or sexual orientation). Several schemes provide substantial public support for hiring employees.
An employer must register each employee with their respective health insurance company. Incorporating a company in order to get a company number (Betriebsnummer) is required for this registration process. Employers can then apply for a company number through the Federal Employment Agency Saarbrücken. For information on recruitment, employment regulations and social security Invest Region Leipzig’s team can provide information and assistance to point you in the right direction, download GTAI’s Setting up a business in Germany PDF or contact Invest Region Leipzig for guidance.
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