Starting a Company in Germany

Every year, over 2 million new businesses are registered in Germany, covering a wide range of specialties. From artisanal bakeries in Berlin to eco-friendly fashion designers in Hamburg, and from tech startups in Munich to sustainable wineries in the Rhineland, German entrepreneurs are diverse and innovative. If you're considering joining them, there's nothing to hold you back.

Let's demystify the process of starting a business in Germany for non-residents and launch a business that leads to lasting prosperity anywhere in the country.

Why you should build a startup in Germany

It is a widely known fact that Germany has one of the strongest economies worldwide. In recent years, it has developed a thriving startup scene, but it hasn't always been seen as the number one place to do business – even in the European region. However, things have changed considerably.

Is it easy to start a business in Germany?

The German government is actively supporting entrepreneurship and innovation through various programs and incentives. These initiatives aim to make the process of starting and running a business as smooth as possible. Helped along by the government's "Digital Agenda 2020", the eCommerce and IT sectors have started to play a much more important role. Berlin has become a haven for innovative software companies, web designers, and marketers. Munich's high-tech economy has embraced AI and new manufacturing techniques, while Frankfurt attracts finance entrepreneurs in huge numbers.

How to start a business in Germany step-by-step

When starting a business in Germany as a foreigner, the exact steps will vary depending on what kind of business you are starting, but the process is usually similar.

Step 1: Research and planning

Thorough research and planning are essential before beginning any administrative tasks.

First, conduct a proper market analysis to understand what people want, who your target audience is, and who your competitors are. Then, create a solid business plan that outlines your business model, financial projections, marketing strategy, and operational plan. This will not only guide your business but also be essential for obtaining funding.

Step 2: Legal and administrative steps

Obtain a business visa, which allows you to a stay for 6 months while you plan your business and complete the necessary paperwork. It requires proof of financial support, short-term health insurance, information on where you will be staying, and – if applicable – a letter from a potential business partner.

Now open a German bank account for all financial transactions, including receiving payments and paying taxes. It's a good idea to choose a bank that offers services for foreigners and provides online banking in English. You'll usually need your passport, proof of address, and a minimum deposit.

When registering with the tax office, you first need to determine whether you will operate as a freelancer (Freiberufler) or a tradesperson (Gewerbetreibender). Freelancers typically include professions such as doctors, lawyers, and artists, while tradesmen encompass those in crafts, retail, and manufacturing. If you are classified as a tradesperson, you will need to obtain a trade license (Gewerbeschein) from the local trade office (Gewerbeamt), which usually costs around €20.

Following this, you must register your business, which involves providing a current passport, a German tax ID number, a valid visa, a functioning bank account, and a residence permit. Upon successful registration, you will receive a VAT number and tax number, which are essential identifiers for your new business in Germany.

Step 3: Mandatory insurances

• Health insurance
  Health insurance is mandatory in Germany. You can choose between public health insurance (gesetzliche Krankenversicherung) or private health insurance (private Krankenversicherung). Do your research and compare different health insurance providers to find a plan that suits your needs and budget.
• Business Liability Insurance
  This Betriebshaftpflichtversicherung protects your company against claims of negligence or harm caused by your business operations, products, or employees. It covers legal costs and any compensation claims, giving you peace of mind and financial protection. Compare different providers to find a comprehensive policy that fits your business's specific risks and requirements.
• Pension Insurance
  Certain self-employed individuals, such as craftspeople, artists, and those in specific freelance professions, are required to contribute to the public pension scheme (gesetzliche Rentenversicherung). Even if not mandatory, making voluntary contributions can be beneficial for future financial security.
• Accident Insurance
  If you are self-employed in a high-risk profession or trade, you may be required to obtain accident insurance through the relevant Berufsgenossenschaft. While not mandatory for all self-employed individuals, it is advisable to consider voluntary coverage for personal protection against work-related accidents and occupational diseases.

• Retirement Provision
  If you're an entrepreneur in Germany, you can contribute to the public pension scheme (gesetzliche Rentenversicherung) or set up private pension plans. Depending on what kind of business you have, you might have to contribute to the statutory pension scheme. It's a good idea to talk to a financial advisor to figure out the best retirement plan for your needs.
  
  

Step 4: Social security & duties as an employer

If you're planning to hire employees, you'll need to register with the German social security system. This includes:

• health insurance
• pension insurance
• unemployment insurance
• accident insurance.

Self-employed individuals must also contribute to the social security system, although the requirements may vary based on your business structure.

Of course, you need to follow all the legal rules and employment laws. For instance, you've got to keep paying your employees' salaries and wages even if they are sick. Plus, your employees are entitled to annual leave. It's also important to know that employees can't be fired without a good reason. Make sure to be well-informed about your obligations regarding your staff.

Step 5: Contracts and laws

As an entrepreneur in Germany, you will have to deal with lots of contracts, laws, and legal regulations. You can get a quick overview of all the important laws and contracts that affect you on the startup portal. Check out the Chambers of Industry and Commerce (IHK) for more info.

If you need any extra help, get in touch with a lawyer. The big advantage is that if all business transactions are contractually regulated, you can be sure that everything is 100 % legally sound.

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Different types of companies in Germany

Before we get into the costs of registering a company in Germany, take a look at the different legal forms available. It's important to choose the right legal structure for your business because it affects your legal obligations, tax liabilities, and overall management.

How much does it cost to register a company in Germany?

The cost of registering a company in Germany depends largely on the legal form you choose and the requirements it entails. Here is a breakdown of the typical costs for each type:

Sole Proprietorship (Einzelunternehmen):

• Registration Fee: Approximately €20 for trade license (Gewerbeschein).
• Additional Costs: Minimal, mostly related to obtaining necessary permits and licenses specific to the business.
  
  

Partnership (Personengesellschaft):

• Registration Fee: Approximately €20 - €50 for trade license (Gewerbeschein).
• Additional Costs: Legal fees for drafting the partnership agreement and potential notary fees.
  
  

Limited Liability Company (GmbH):

• Registration Fee: Approximately €400.
• Capital Requirement: Minimum share capital of €25,000 (at least half must be deposited before registration).
• Notary Fees: Fees for notarizing the articles of association and other legal documents.
• Additional Costs: Legal and consulting fees, costs for opening a bank account.
  
  

Entrepreneurial Company (UG):

• Registration Fee: Approximately €400.
• Capital Requirement: Minimum share capital of €1.
• Notary Fees: Similar to GmbH but generally lower due to simplified structure.
• Additional Costs: Legal and consulting fees, costs for opening a bank account.
  
  

Stock Corporation (AG):

• Registration Fee: Approximately €500-€700.
• Capital Requirement: Minimum share capital of €50,000.
• Notary Fees: Higher due to more complex requirements.
• Additional Costs: Legal and consulting fees, costs for opening a bank account, costs associated with compliance and reporting requirements.