At least one shareholder (private individual or legal entity) must establish a GmbH. The nationality and residence of the shareholder(s) and the managing director(s) are irrelevant. However, the GmbH must have a German business address and a local representative.
You may have come across the terms GmbH and Mini-GmbH or UG, and are unsure what the difference between the two is.
In a nutshell: A GmbH is a limited liability company, while a Mini-GmbH or UG (Unternehmergesellschaft) is a simplified version of a GmbH with a lower minimum share capital (at least 1 euro). Both offer liability protection, but a Mini-GmbH must use a quarter of its annual profits to reach the share capital of a GmbH (25.000 euros) and show this in its annual financial statements.
The minimum share capital for a GmbH is 25.000 euros, with each share having a minimum nominal value of 1 euro. At least 50 percent of the cash contribution must be paid up before the business can be registered.
You need to follow these steps to found a private limited liability company in Germany:
A few different officials are involved with founding a GmbH in Germany. Here’s an overview of what they all do:
The German notary must certify the company contract, which is required to form a GmbH. The notary also notarises the appointment of the CEO and the formation resolution, while also ensuring that the company is registered in the Companies Register.
Generally, the notary costs are about 1.500 euros.
The commercial register is a German companies register kept by the local registry courts that stores entries about all merchants.
Every GmbH must register with the local Gewerbeamt (trade licencing office). From our experience, this costs somewhere between 15 euros to 60 euros.
Tax authorities are responsible for the tax registration of the GmbH. They will issue a tax number and VAT identification number for the GmbH.
In Germany, all corporations - including GmbHs and AGs - are subject to corporate tax and municipal trade tax.
The corporate tax rate is 15 percent. In addition, there is a solidarity surcharge of 5,5 percent of the tax, making the effective rate 15,825 percent. This rate is competitive compared to other countries in the EU or worldwide. However, limited liability companies in Germany must also pay a municipal trade tax.
The municipal trade tax is a corporate tax levied by municipalities at a minimum rate of 7 percent and a maximum of 21 percent. The trade tax rate in Germany is 3,5 percent multiplied by the municipality's trade tax rate (what is known as the Hebesatz). The tax is calculated on profit.
The overall effective tax rate of your GmbH ranges from 22,825 percent to 36,825 percent, depending on the business location.
Tip: Before founding your company in Germany, look at the municipalities in your area, as the tax rates can vary quite a bit! In Munich, the Hebesatz is 490 percent, while in the suburbs Grünwald and Gräfelfing, the rate is 240 percent and 250 percent - resulting in a total effective tax rate of 24,22 percent and 24,58 percent, compared to the 32,98 percent you’d pay in Munich.
For Berlin (410 percent), it might be worth considering Schönefeld (240 percent) as an alternative location for your limited liability entrepreneurial company.
Managing directors of a GmbH must be individuals and can be of any nationality. Nevertheless, they have legal duties and obligations, and noncompliance can result in personal liability.
Foreign companies and investors in a GmbH are subject to the same legal requirements as domestic investors but may face additional regulations.
A tax advisor can help with tax implications, preparing tax returns, planning, compliance issues, and setting up bookkeeping and payroll systems. However, it's important to note that tax planning can only have its full effect before any transactions are made. A tax advisor will also guide you through the startup process so you have more time to focus on your business.