5 simple steps for starting a business in Germany - by establi
Do you want to start a business in Germany? establi.de - an online platform supporting internationals who want to set up a business in Germany - offers its five top tips for getting started.
Germany is one of the top locations worldwide for realising a new business venture, thanks to its strong economic position and central European location. This guide is intended to help anyone planning to become self-employed in Germany, laying out the specific steps involved in setting up a business.
1. Get your plan together
Before you start your business project, you need, of course, a business idea. Further developing this idea is not only one of the first steps of establishing a business, but also a process that will never stop.
So how do you find an idea that you can work with long-term and with never-ending passion? A good business idea has the following characteristics:
- It solves a problem
- It fits your personality
- It launches in a market big enough to make it successful
Once you have found an idea, developed it sufficiently and gathered enough feedback to be sure that it’s a goer, it’s time to take the next steps.
Before you get started with registering your own business, you need to double-check whether your residence permit allows you to carry out self-employed activity. It should state this explicitly on your paperwork. If you’re not sure, speak with your local Immigration Office (Auslӓnderbehörde).
2. Pick a legal form
When setting up a company in Germany, you need to choose a legal framework. For this, three things are important:
Are you a Gewerbetreibender or a Freiberufler?
Unlike some other countries, Germany makes a strict distinction between two different types of self-employed activity:
- A Freiberufler is a freelancer who sells their services independently.
- A Gewerbetreibende is a company or contractor (tradesperson) with regular work (basically anyone who doesn’t qualify as a freelancer).
As a freelancer, you are not required to register your business with the trade office or pay corporation tax. If you’re not sure which you are, your local tax office can advise you.
Is your new business your main or secondary trade?
A secondary or side business (Nebengewerbe) differs from a primary business (Hauptgewerbe) primarily in the fact that a side business takes up a much smaller proportion of your time, and accounts for a smaller portion of your gross monthly income.
This matter is especially important for your health insurance company and your employer (if you have one).
Which legal form is right for me?
This is such a big question you could practically write a whole book about it. There are multiple different business forms out there to suit all different types of business.
This article should help you find the right legal form for your business in Germany.
3. Officially register your business
In Germany, anyone who wants to start a business must also register it. In most cases, this involves four different points of contact - but depending on your business you may also have to meet with other institutions. If this is the case, your first contact point - the Gewerbeamt - will inform you of this.
Here’s an overview of the institutions you will likely have dealings with:
The German Trade Office (Gewerbeamt)
If you’re a Gewerbetreibende, your first point of contact will be the trade office (Gewerbeamt). They can issue you with a trade licence (Gewerbeschein), which is essentially your permission slip to run a business.
Once you have successfully registered with the German Trade Office, you will receive further information in the post. Your business registration will also be automatically forwarded to the responsible Finanzamt (tax office), the Berufsgenossenschaft (employers' liability insurance association), and the IHK (Chamber of Industry and Commerce).
Note that if you are a freelancer, you don’t have to go to the trade office, because you don’t need a trade licence. Instead, your first port of call will be to register with the tax office (Finanzamt) - see below.
The Commercial Register (Handelsregister)
The Commercial Register incorporates and dissolves companies, registers company information, and makes it available to the public.
If you choose one of the following legal forms for your business, you need to enter it in the Commercial Register:
- Eingetragene Kaufleute (e.K.)
- Corporation (GmbH, UG, AG)
- Partnership (oHG, KG, GmbH & Co. KG)
In the case of Einzelunternehmen (sole proprietorships) and GbRs, registration is voluntary.
Freelancers (Freiberufler) cannot be entered into the Commercial Register.
Before you can enter your business in the Commercial Register, you need an appointment with a notary. Depending on your situation, the cost of registering will be somewhere between 70 and 260 euros.
The German tax office (Finanzamt)
Both Freiberufler and Gewerbetreibende need to register their businesses with the tax office. To do this, you need to fill out a form known as the Fragebogen zur steuerlichen Erfassung (tax registration questionnaire). This form is relatively long and complicated, so it’s a good idea to consult with a tax advisor before submitting it. They can help guide you and make sure you don’t make any mistakes - which could cost you later on.
The German Social Accident Insurance Association (Berufsgenossenschaft)
This institution is responsible for insuring your company and your employees. Every newly established company must register with the Berufsgenossenschaft within one week of establishment.
As a Gewerbetreibende, you must register even if you don’t have any employees (yet). In this case, you do not have to pay membership fees.
If you are a Freiberufler without any employees, in most cases you can choose whether or not to insure yourself - but for some professions insurance is mandatory. There are many different insurance associations in Germany that are responsible for different industries. You need to register with the Berufsgenossenschaft that is responsible for your industry.
4. Be clear about your costs
The cost of starting a business in Germany varies greatly depending on your personal situation. You should read widely to get an overview of the various costs involved before deciding to set up your business, to avoid nasty surprises further down the road.
At the beginning especially, many people lack the financial resources to get the ball rolling - but that doesn’t mean their business dream has to die. In fact, there are numerous sources of funding in Germany that entrepreneurs can take advantage of, whether they are from Germany or not.
Another important expense that entrepreneurs in Germany have to consider is taxes. In the federal republic, taxes are relatively high compared to other countries, but with a little bit of knowledge of the tax system, it’s possible to save a lot of money. Depending on the legal form of your business, you are liable to pay different kinds of business taxes - so make sure you are clear about taxes for entrepreneurs in Germany, so you can have a really accurate picture of your business’s finances.
5. Consider the next essential steps
These simple steps are not the end of the story. There are a few other things you will need to think about to get your business off the ground and well on the way to becoming a success:
- Business plan: While not always necessary, writing a business plan can be a good way to determine whether your bright idea could work. It’s also essential if you want to secure funding.
- Business account: When you register your business with the tax office and start paying taxes, you’ll need a German bank account. It’s a good idea to have a separate business bank account to keep your financial affairs in good order.
- Health insurance: Once you make the switch to becoming self-employed, you can choose whether to have statutory health insurance (GKV) or private health insurance (PKV).
As you can see, there’s quite a lot involved in starting a business in Germany. While this guide has hopefully given you some things to think about, there’s a long way to go before you’re finally up and running.
The free platform establi.de was created so that everyone, regardless of their background, can fulfil their entrepreneurial dreams and start their own business in Germany without unnecessary barriers. As well as useful articles, guides, workshops and events, their community provides all the answers, contacts and support budding entrepreneurs in Germany need. Make sure to check it out!
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